USD/JPY Fundamental Weekly Forecast – Traders to Weigh June US Non-Farm Payrolls Against New COVID-19 Cases

The Dollar/Yen closed higher last week as weaker global equity markets drove investors into the safety of the U.S. Dollar. The catalysts behind the weakness in demand for higher risk assets were rising COVID-19 cases which threatened to derail the global economic recovery.

Technically, enough buyers came in last week at 106.074 to trigger a potentially bullish weekly closing price reversal bottom. If confirmed, this could lead to the start of a 2 to 3 week counter-trend rally. However, if the selling resumes and the main bottom at 105.987 is taken out then we could see the start of a steep sell-off.

Last week, the USD/JPY settled at 107.221, up 0.348 or +0.33%.

The price action last week was choppy and two-sided despite the higher close. The highlight of the week took place on June 23 when buyers and sellers produced a wickedly volatile outside move.

USD/JPY traders were spooked at the start of the trading session by comments from White House Trade Advisor Peter Navarro, who said that the trade deal between the United States and China is “over”. But he quickly backtracked his statement afterwards, claiming that his comments were taken out of context. U.S. President Donald Trump also said that the Phase One trade deal remains in place in a tweet.

Last week’s economic data was relatively tame, triggering little response from traders. The flash headline au Jibun Bank Japan Manufacturing Purchasing Managers’ Index fell to 37.8 in June from 38.4 in May instead of rising to 39.5 as analysts had predicted. The reading for the au Jibun Flash Japan Services Business Activity Index jumped to 42.3 from 26.5. The Bank of Japan reported that the core Consumer Price Index was unchanged in May. Market participants were expecting the same 0.1% decline as in April.

Bank of Japan Summary of Opinions

The BOJ’s summary of opinions from its latest policy-setting meeting suggests it may wait to see the effects of its recent measures to help companies affected by the coronavirus.

As the bank’s virus-response measures have been introduced almost in full, “it is desirable to carefully confirm and examine their effects for the time being,” one of the bank’s nine policy board members was quoted as saying in the summary of the June 15-16 meeting.

There was also an opinion calling for the bank to prioritize securing employment through supporting corporate financing, while maintaining cooperation between fiscal and monetary policies.

At the June meeting, the bank left key interest-rate targets unchanged. It said the total amount of its support for corporate financing would reach 110 trillion yen ($1.033 trillion) from an earlier total of Y75 trillion, in line with an expansion in government programs that the central bank is supporting.

Weekly Forecast

It’s a holiday shortened week in the U.S. so trading volume could be light, but that doesn’t mean we won’t see volatility. The main focus for traders will be risk sentiment. The catalyst that could trigger volatility in the equity and Forex markets will be the COVID-19 numbers. Another week of surging cases could drive up demand for the safe-haven U.S. Dollar.

There are plenty of economic reports to watch, but most eyes will be on the testimony of Federal Reserve Chairman Jerome Powell on Tuesday and Thursday’s U.S. Non-Farm Payrolls report.

As far as the jobs data is concerned, investors want to see if last month’s surprise gains in the headline number and the drop in the unemployment rate were real or a fluke.

For a look at all of today’s economic events, check out our economic calendar.

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James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.